Friday, 20 November 2015

Capital III, Chapter 18 - Part 4

Productive capital, Marx says, has no real limits to its ability to keep expanding its output. In fact, because of the economies of scale it enjoys, the more it expands its output, the more it reduces its costs, raises productivity and increases its mass of profits, so as to expand even more.

“Owing to the immense elasticity of the reproduction process, which may always be pushed beyond any given bounds, it does not encounter any obstacle in production itself, or at best a very elastic one.” (p 304)

The only barrier to the expansion of capital then, Marx says, is the limit it faces in terms of the expansion of the market, to absorb that output. But, particularly in times of prosperity, the merchant capitalists are more likely to engage in speculative purchases, anticipating that demand for commodities will continue to rise, and possibly at higher market prices. The basic urge of merchant capital, to buy low and sell high always, under such conditions, tends to encourage over-trading to buy more now, in the hope of selling later at higher prices.

The consequence is then that besides the basis of crises presented by the separation of production and consumption, production is driven on even further by this speculative demand from merchant capital. This is exacerbated by the development of credit, which enables the merchant to buy increasing amounts even before it has turned over the capital advanced for its previous purchases.

“Aside from the separation of C — M and M — C, which follows from the nature of the commodities, a fictitious demand is then created.” (p 304)

This fictitious demand, therefore, is always likely to be demonstrated to be such if no real final demand for these commodities manifests itself. The consequence must then be a crisis.

“In spite of its independent status, the movement of merchant's capital is never more than the movement of industrial capital within the sphere of circulation. But by virtue of its independent status it moves, within certain limits, independently of the bounds of the reproduction process and thereby even drives the latter beyond its bounds. This internal dependence and external independence push merchant's capital to a point where the internal connection is violently restored through a crisis.” (p 304)

This is the reason, Marx says, that crises do not break out in the retail sector, but in wholesaling and banking, because its here that the failure to sell commodities breaks out into a series of failed payments.

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